Current market observations: LGCs

The 6.4 gigawatts (GW) of new large-scale renewable energy capacity required to be accredited between 2017 and 2019 to meet the 2020 Large-scale Renewable Energy Target (LRET) was approved on 30 August.

At the end of September 2019, the accredited capacity for 2019 so far was 7.3 GW.

Since 2016, over 13 GW of new large-scale renewable energy projects are generating, under construction, committed or probable to be built.

Recent additions to the pipeline have been driven by smaller market players and corporate power purchase agreements.

The LGC balance may be tight this year depending on the amount of paid shortfall and the 10 per cent carry forward mechanism.

We estimate that 35.3 million LGCs will be in the market by February 2020. This includes expected supply of 28.2 million LGCs and a 7.1 million LGC surplus.

It is expected that around 4.7 million of these LGCs may be unavailable for surrender due to shortfall charge refunds and voluntary surrender.

The Clean Energy Regulator’s position on shortfall remains unchanged; liable entities may defer liability through paid shortfall or carried forward shortfall of less than 10 per cent.

LGCs surrendered for shortfall charge refunds are not subject to the vintage rule, this means that entities who intend to surrender LGCs for the refund in February 2020 can use LGCs created and validated in 2020.

LGC spot prices were $44 on 17 October 2019.

LGC forward prices for 2020 and 2021 are at $34.75 and $15.60 respectively.